How not to win friends and influence people

Prior to 2013, Cyprus had a reputation as an investment-friendly country, with the lowest corporate tax rate in Europe, a light regulatory environment, and a thriving banking, accounting and legal infrastructure to support business activity.

Of course, the events of March 2013 when Cyprus had to appeal to the international community for a bail-out, the 10% haircut applied to all bank deposits in excess of €100,000, and the near-collapse of the banking system undermined that reputation very swiftly. However, ignoring media hysteria about the country as a centre for money laundering and other corrupt practices, Cyprus has tried very hard in the past 4 years to get its house in order.

The bail-out was exited early and all loans repaid (compare and contrast with Greece, for example!); the banking sector has been reformed and strengthened – even if the issue of NPL (Non-Performing Loans) remains the elephant in the room; tax laws have been tightened and reporting requirements made more stringent, so much so that Cyprus has been an early adopter of legislation such as CRS (the OECD Common Reporting System), which seeks to develop a single global standard for the automatic exchange of information between tax authorities.

Cyprus remains, in theory, an attractive place in which, and from which, to do business. At 12.5% its corporate tax rate rivals Ireland as the lowest in Europe (and without the Irish barriers to entry for small businesses). It has a highly educated work force (Cyprus has the highest number of graduates per capita in Europe), whilst salary levels are 30% lower than Western European equivalents.

However, there are a number of ways that Cyprus continues to let itself down, not least in terms of its bloated government sector, archaic civil service, and working practices that belong more to the 19th than the 21st century.

To cite a few examples.

In 2011, as a short-term measure to boost dwindling state coffers, an annual levy of €350 on all Cyprus companies was introduced. Six years later, what was intended to be a temporary tax remains in place, with no sign of being repealed. This is very short-sighted and it discourages investment; the money it raises would be dwarfed by the wealth which would be created, direct and indirect, by would-be investors.

Whilst the official language of the country is Greek, most business is conducted in English. Contracts are written in English, invoices drafted in it, emails and other communications are usually in  English, and most business discussions take place in it. Most professionals have a high degree of spoken and written English, whilst it is the lingua franca of the international business world. Despite this, many official forms are only written in Greek, government websites offer only partial or incomplete transactions, whilst many civil servants will stubbornly refuse to speak English, even if they can probably speak it very well.

This is just perverse and counter-productive. If you want business to invest in your country, make it easy for them to communicate with you.

Government departments and their practices are hopelessly outdated; thousands of words could be devoted to the subject of the vast over-manning (or “over-womanning” as many of these employees seem to be female) of these departments, and their continued reliance and addiction to paper records in the digital age. However, this is beyond the scope of this current post.

Illustrative perhaps of these practices is the use – or misuse – of email. If you have a problem with the Social Security department or they need additional information, you can either fax them (an outdated technology in itself), send it by snail mail, or deliver it to them in person. Forget email or scans – they are not allowed individual email accounts, and do not have access to a printer anyway. And, if they do have an email account, chances it won’t work properly.

During a recent encounter with the VAT department, I was asked to supply details of my company bank account when applying for a VAT refund. Three different email addresses were supplied to me in the course of my interaction with the VAT department, and three different email addresses failed to connect, despite a flurry of follow-up calls to verify spellings, hyphenation etc.

Then there is the culture of the front-line staff who deal with the public. Rather than a “can-do” attitude, many adopt a “won’t do” or “can’t be bothered” stance. This includes the staff at Companies House who would not accept a change in company directorship because one document was in English; a Nicosia municipality who insisted on imposing a punitive event tax on a non-profit organisation; or the tax authorities who have designed an annual tax declaration so complicated that the average PhD student would struggle to complete it.

Any Cypriot could give you myriad examples from their daily lives of the incompetency, intransigence and unhelpfulness of their civil servants. This is not to condemn the people themselves, many of whom are good, friendly folk outside work. Rather it is the culture and mindset of the government apparatus which is to blame. Civil servants are not empowered, they do not have the tools to do the job, and are not incentivised for the right behaviours. This needs to change if Cyprus is truly to succeed.

There is a popular image of a Palestinian carrying an image of Jerusalem on his back, like a turtle with a shell. This is akin to the private sector in Cyprus which is encumbered by the government and civil service, weighing it down and hampering its movement. If Cyprus truly wants to become a hub for investment, then it needs to take steps to modernise the civil service, adopt 21st century practices, and foster an attitude of cooperation and willingness to help.

Then we can really say that Cyprus is open for business.


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